PLR 1224042: IRS recognizes three employee benefit plans as church plans

Plain-English summary

A nonprofit organization affiliated with a religious society asked whether three employee benefit plans qualified as church plans under IRC § 414(e). The organization was controlled by a committee whose members belonged to the religious society, and the plans were administered by a benefits committee appointed by the organization. The IRS concluded that the organization shared common religious bonds and convictions with the society and that the plans met the church-plan requirements. The ruling did not address whether the plans were qualified under IRC § 401(a), or whether the separate plans satisfied IRC §§ 129 and 125.

Ruling snapshot

• Question: Do the three employee benefit plans qualify as church plans under IRC § 414(e)?
• Outcome: Approved
• Key authorities: IRC §§ 414(e), 501, and 513; Rev. Proc. 2011-44

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

201224042

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

MAR 19 2012

U.I.L.: 414.08-00

T:EP:RA:T2

XXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXX

Attn: XXXXXXXXXXXXXX
XXXXXXXXXXXXXXX

Legend:

Committee A = XXXXXXXXXXXXXXXXXXXXXXX

Committee S = XXXXXXXXXXXXXXXXXXXXXXX

Fund T = XXXXXXXXXXXXXXXXXXXXXXX

Plan X = XXXXXXXXXXXXXXXXXXXXXXX

Plan Y = XXXXXXXXXXXXXXXXXXXXXXX

Plan Z = XXXXXXXXXXXXXXXXXXXXXXX

Society B = XXXXXXXXXXXXXXXXXXXXXXX

Society C = XXXXXXXXXXXXXXXXXXXXXXX

State B = XXXXXXXXXXXXXXXXXXXXXXX

Directory D = XXXXXXXXXXXXXXXXXXXXXXX

Company M = XXXXXXXXXXXXXXXXXXXXXXX

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Dear XXXXXXXXX:

This letter is in response to your request dated XXXXXXXXXXX, as supplemented by
correspondence dated XXXXXXXXX, XXXXXXXXX and XXXXXXXXXXX, submitted on
your behalf by your authorized representative regarding the church plan status of
Plan X, Plan Y, and Plan Z, (collectively referred herein as the “Plans”) within the
meaning of section 414(e) of the Internal Revenue Code (Code).

The following facts and representations have been submitted on your behalf:

Committee A is a nonprofit corporation located in State B and is exempt from
Federal taxes as an organization described in Code section 501(c)(4).
Committee A’s purposes are to educate its members and other persons, and to
educate policy-making officials in various branches of government with respect
to issues touching on its testimonies and beliefs. Committee A furthers its
purposes by preparing and distributing literature and other educational materials,
conducting and encouraging visits and interviews of persons in positions of
authority in the national and state governments, and working in coalitions with
other organizations with similar goals in accordance with Article 1, section 3 of its
Bylaws.

Committee A is controlled by and shares common religious bonds and
convictions with Society B which is an organized religion which originated in
England in 1652 and came to what is now the United States in 1656. Its
fundamental organizational unit is the “Monthly Meeting” which holds weekly
worship services in a given community. Two or more Monthly Meetings in the
same geographic area are grouped into “Quarterly Meetings” which serve to
coordinate business and information between Monthly Meetings and “Yearly
Meetings”. Yearly Meetings consist of constituent Quarterly and Monthly
Meetings in a geographic area and are the main governing bodies for Society B.
All members of a Monthly Meeting are thereby members of the Quarterly and
Yearly Meetings in a geographic area and are also automatically members of
Society C. Committee A receives its financial support from approximately 628
Monthly and Yearly Meetings of Society B.

Committee A, the sponsor of the Plans, is governed by Committee S. All
members of Committee S must be members of Society B. Two-thirds of the
members of Committee S are appointed by Yearly Meetings and other
associations, conferences, agencies and committees of Society B. The other
one-third of the members is self appointed by Committee S. Committee A is
listed in Directory D as an organization associated with the Yearly Meetings of
Society B.

Committee A controls one other entity, Fund T. Fund T is also a nonprofit
corporation located in State B and is exempt from Federal taxes as an
educational organization described in Code section 501(c)(3). Its purpose is to
educate members of Society B and others with respect to issues that touch on its
testimonies and beliefs. Fund T has no employees at the present time and does
not participate in the Plans.

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Plan X is a successor plan to a money purchase pension plan originally
established on February 1, 1963, and which was amended and restated to be a
401(k) plan effective January 1, 2001. The participants in Plan X are eligible
current and former employees of Committee A. Plan X is a non-standardized
prototype profit sharing plan sponsored by Company M and has received a
favorable determination letter dated July 26, 2005. Plan Y is a plan under Code
section 129 and Plan Z is a cafeteria plan under section 125 of the Code.

All of the Plans have been amended to provide that the plan administrator is the
Benefits Committee, all members of which are appointed and may be removed
by Committee A. The Benefits Committee was appointed by Committee A on
October 9, 2004. The principal purpose or function of the Benefits Committee is
the administration of the Plans. Prior to the board resolution amending the plans,
the plan administrator was Committee A.

None of the employees participating in the Plans are employed in connection
with an unrelated trade or business within the meaning of Code section 513.

Committee A has not made the election under section 410(d) of the Code with
respect to Plan X, its predecessor money purchase plan, or any other employee
benefit plan it maintains. However, it has in the past voluntarily operated its plans
in compliance with the standards of ERISA.

In accordance with Revenue Procedure 2011-44, Notice to Employees with
reference to Plan X was provided on November 17, 2011. This notice explained
to participants of Plan X the consequences of church plan status.

Based on the foregoing, you request a ruling that Plans X, Y, and Z are church
plans within the meaning of section 414(e) of the Code..

Section 414(e)(1) of the Code generally defines a church plan as a plan
established and maintained for its employees (or their beneficiaries) by a church
or a convention or association of churches which is exempt from taxation under
section 501 of the Code.

Section 414(e)(2) of the Code provides, in part, that the term “church plan” does
not include a plan that is established and maintained primarily for the benefit of
employees (or their beneficiaries) of such church or convention or association of
churches who are employed in connection with one or more unrelated trades or
businesses (within the meaning of section 513); or if less than substantially all of
the individuals included in the plan are individuals described in section 414(e)(1)
or section 414(e)(3)(B) (or their beneficiaries).

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Section 414(e)(3)(A) of the Code provides that a plan established and maintained
for its employees (or their beneficiaries) by a church or by a convention or
association of churches includes a plan maintained by an organization, whether a
civil law corporation or otherwise, the principal purpose or function of which is the
administration or funding of a plan or program for the provision of retirement
benefits or welfare benefits, or both, for the employees of a church or a
convention or association of churches, if such organization is controlled by or
associated with a church or a convention or association of churches.

Section 414(e)(3)(B) of the Code defines “employee” of a church or a convention
or association of churches to include a duly ordained, commissioned, or
licensed minister of a church in the exercise of his or her ministry, regardless of
the source of his or her compensation, and an employee of an organization,
whether a civil law corporation or otherwise, which is exempt from tax under
section 501, and which is controlled by or associated with a church or a
convention or association of churches.

Section 414(e)(3)(C) of the Code provides that a church or a convention or
association of churches which is exempt from tax under section 501 shall be
deemed the employer of any individual included as an employee under
subparagraph (B).

Section 414(e)(3)(D) of the Code provides that an organization, whether a civil law
corporation or otherwise, is associated with a church or a convention or
association of churches if the organization shares common religious bonds and
convictions with that church or convention or association of churches.

Revenue Procedure 2011-44, 2011-39 I.R.B. 446 supplements the procedures
for requesting a letter ruling under section 414(e) of the Code relating to church
plans. The revenue procedure (1) requires that plan participants and other
interested persons receive a notice in connection with a letter ruling request
under section 414(e) for a qualified plan, (2) requires that a copy of the notice be
submitted to the Internal Revenue Service (“IRS”) as part of the ruling request,
and (3) provides procedures for the IRS to receive and consider comments
relating to the ruling request from interested persons.

In order for an organization that is not itself a church or convention or association
of churches to have a qualified church plan, it must establish that its employees
are employees or deemed employees of a church or convention or association of
churches under section 414(e)(3)(B) of the Code by virtue of the organization’s
control by or affiliation with a church or convention or association of churches.
Employees of any organization maintaining a plan are considered to be church
employees if the organization: 1) is exempt from tax under section 501 of the

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Code; 2) is controlled by or associated with a church or convention or association
of churches; and 3) provides for administration or funding (or both) of the plan by
an organization described in section 414(e)(3)(A) of the Code. To be described in
section 414(e)(3)(A) of the Code, an organization must have as its principal
purpose the administration or funding of the plan and must also be controlled by
or associated with a church or convention or association of churches.

In this case, Committee A is an organization described in Code section 501(c)(4),
which is exempt from tax under section 501 of the Code. Committee A is
governed by Committee S. All members of Committee S must be members of
Society B. Two-thirds of the members of Committee S are appointed by the
Yearly Meetings and other associations, conferences, agencies and committees
of Society B. The other one-third of the members is self appointed by Committee
S. Committee A is listed in Directory D as an organization associated with the
Yearly Meetings of Society B.

Committee A was formed to coordinate and enhance the efforts of Society B to
lobby the executive and legislative branches of national government with respect
to issues touching on its testimonies and beliefs. Committee A receives its
financial support from approximately 628 Monthly and Yearly Meetings of Society
B.

Pursuant to section 414(e)(2) of the Code, the Plans are not maintained primarily
for the benefit of employees employed in connection with one or more unrelated
trades or businesses with the meaning of section 513 of the Code.

All of the Plans have been amended to provide that the Plan Administrator is the
Benefits Committee, all members of which are appointed and may be removed
by Committee A. The Benefits Committee was appointed by Committee A on
October 9, 2004. The principal purpose or function of the Benefits Committee is
the administration of the Plans.

Because Committee A is associated with Society B within the meaning of section
414(e)(3)(D) of the Code, the Benefits Committee is considered to be associated
with a church or convention or association of churches within the meaning of
section 414(e)(3)(A) through its relationship with Committee A. Therefore, based
on the information provided, it is concluded that Committee A is an organization
that shares common religious bonds and convictions with Society B and is
associated with Society B under the rules of section 414(e)(3)(D) of the Code. It
is further concluded that Committee A employees are employees of an
organization, whether a civil law corporation or otherwise, which is exempt from
tax under section 501 of the Code and which is associated with a church or
convention or association of churches. Under the rules of section 414(e)(3)(B) of
the Code, Committee A employees are considered to be church employees for
purpose of the church plan rules.

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In addition, the administration of the Plans satisfies the requirements regarding
church plan administration under section 414(e)(3)(A) of the Code. Accordingly,
the Plans are maintained by an organization that is associated with a church or
convention or association of churches, the principal purpose or function of which
is the administration of the Plans for the provision of retirement benefits or
welfare benefits, or both, for the deemed employees of a church or convention or
association of churches.

Based on the foregoing facts and representations, we conclude that plans X, Y,
and Z are church plans within the meaning of Code section 414(e).

This letter expresses no opinion as to whether Plan X, satisfies the requirements
for qualification under Code section 401(a). The determination as to whether a
plan is qualified under section 401(a) is within the jurisdiction of the Manager,
Employee Plans Determinations Program, Cincinnati, Ohio.

This letter expresses no opinion as to whether Plan Y satisfies the requirements
of section 129 of the Code or whether Plan Z satisfies the requirements of
section 125 of the Code.

This ruling is directed only to the taxpayer who requested it. Code section
6110(k)(3) provides that it may not be used or cited by others as precedent.

A copy of this letter is being sent to your authorized representative pursuant to a
Power of Attorney on file in this office.

If you have any questions regarding this letter, please contact XXXXXXXXXXXXX,
SE:T:EP:RA:T3, at XXXXXXXXXXXXX.

Sincerely yours,

Laura B. Warshawsky, Manager
Employee Plans Technical Group 3

Enclosures:
Deleted Copy of letter ruling
Notice 437

CC: XXXXXXXXXXXXXX